One Duty to All: The Fiduciary Duty of Impartiality and Stockholders’ Conflict of Interest

Abstract

Delaware precedent, primarily Trados and ODN, holds that corporate boards of directors owe fiduciary duties to holders of corporation common stock and not to holders of preferred stock. This precedent, however, fails to address a broad range of complex but commonly occurring potential conflicts between and among holders of common stock and multiple classes of preferred stock. Rarely analyzed or applied in an intra-corporate context, the fiduciary duty of impartiality allows a fiduciary to exercise discretion while having a duty to act bona fide in the best interests of the beneficiaries as a whole. Mostly derived from U.S. common law of trusts, this duty requires a fiduciary to act in the best interests of the beneficiaries but recognizes that beneficiaries have competing economic interests. It is a balancing test that provides a corporation’s board of directors a flexible tool with which to weigh various, and often conflicting, stockholders’ interests to reach a resolution that maximizes the value of the enterprise as a whole. As such, the fiduciary duty of impartiality provides an analytical framework that allows for the discipline and consistent resolution of many of these unexplored conflicts.